Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Amid growing conviction on the bright future of electric vehicles (EVs), the scramble for battery metals like lithium is just beginning.
By the first week of 2022, prices for lithium carbonate, a key ingredient in lithium iron phosphate (LFP) batteries, reached a new high of 300,000 yuan or nearly $47,500 per ton in China.
The above graphic charts the exponential surge in both lithium prices and China’s EV sales between 2015 and 2021.
After brief spikes in 2016 and 2017, lithium prices were on a downtrend until 2021. With that context, it’s safe to say that the year’s 497% surge was nothing short of dramatic.
Here’s how lithium prices changed in 2021, on a quarterly basis:
*Represents prices for battery-grade lithium carbonate. Converted from yuan to USD via xe.com as of Jan 19, 2022.
Source: TradingEconomics
As producers struggled to keep up with rising demand for battery-grade lithium carbonate, prices increased six-fold in 2021.
This rise was amplified in October when Tesla announced a switch to LFP batteries for all of its standard-range cars. Previously, Tesla only used LFP batteries for cars produced in China.
Why did Tesla make the switch?
LFP was the initial cathode chemistry used in lithium-ion batteries for EVs in China, the largest market for EVs. Over time, consumer preferences for longer driving ranges drove manufacturers towards higher-density lithium nickel manganese cobalt (NMC) cathodes, which can manage longer distances on a single charge.
However, most of the cobalt used in NMC batteries comes from the Democratic Republic of the Congo, where cobalt mining is associated with several humanitarian issues. These concerns, along with the high material cost of cobalt, prompted automakers to look at alternative cathode chemistries.
This has caused automakers like Tesla to turn back to LFP cathodes, which do not require cobalt and are relatively cheaper to produce.
According to BloombergNEF, global EV sales were on track to hit 6.3 million units in 2021—nearly double the total of 2020.
However, despite recent growth, EV adoption has a long way to go, with EVs making up just 4.3% of global auto sales in 2020. This suggests that the future is bright for battery metals like lithium, which will likely continue to be in high demand.
(This article first appeared in the Visual Capitalist Elements)
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